Payroll Tax Debt Relief

Payroll Tax and the Fresh Start Program

A program I learned a lot about as I was educating myself on IRS policies is the IRS Fresh Start Program. I own my own business, and needed some assistance getting my tax debt straight before I could finalize my divorce. The Fresh Start Program Business and Payroll Taxes settlement guidelines that are incredibly helpful for solving tax problems. One of the main goals for the program was to work with small businesses and to help them get back on their feet if hard economic times had resulted in a tax liability. The new guidelines were set in place to help ease the transition for a business that has fallen behind on its obligated taxes. It’s purpose is to help them get back into compliance with the IRS.

If businesses fail to pay their taxes they then have to sort out their liabilities with the IRS. Whether it’s a C-Corp (Form 1120) having failed to pay their income and payroll taxes or an S-Corp (Form 1120-s) or partnership (Form 1065) failing to meet their payroll obligations, business and payroll tax problems are definitely more prevalent than most people realize.

payroll tax debt

When it’s your business, a tax debt can feel like the weight of the world.

Offer in Compromise

I talked about the Offer in Compromise for individuals, but it is also an option for businesses (Phew!). Not only does the Fresh Start’s approach to Offer in Compromise define clearer rules for business and payroll taxes, but it also allows for the exclusion of some income producing assets. Through expanding what can be constituted as an income producing asset, the IRS has allowed for business owners to completely rethink how their tax problem can be approached. These are great additions for businesses that owe money. IRS Fresh Start Program Business and Payroll Taxes’ expanded guidelines offer much-needed options.

In order to have an Offer in Compromise accepted for a business, it’s critical to show that it is a quality business. You have to show that it’s a stand-up company that just fell on some hard times. Something unanticipated happened and caused the business to not be able to function at a profitable level. Maybe they lost a lease or their biggest client; what’s necessary is that they didn’t see their lapse coming. It was something out of their hands.

Installment agreements depend on fixing the problem

The IRS Fresh Start Program increased the threshold that a business can owe in order to get into a streamlined installment agreement. Previously, it was in place for any business owing under $10,000. The threshold was bumped up to $25,000 under the Fresh Start Program, and the allotted amount is to be paid back in two years (as long as it didn’t come within the time span of the Collection Statute Expiration Date).

What is absolutely key is that you do not default on any of your payments. If you’re going to enter into an installment agreement, make sure that whatever caused your tax problem problem in the first place is completely fixed; make sure that you have your business heading in the right direction. Once a payment is defaulted, all bargaining chips are off the table and the IRS can question anything you say from that point on.

Some warnings:

  • You must stay current – Do NOT run up a new payroll tax debt while your Offer in Compromise is pending. If you can’t stay current, you will need to consider your options, such as shutting the business down and applying the assets towards the Trust Fund Penalty, if you are so allowed, or laying off employees so you have a payroll you can manage.
  • Don’t lowball – First, if you lowball, the IRS will likely not accept your Offer in Compromise. Second, if you lowball an Offer in Compromise, that just means the Trust Fund portion will have to be paid personally by you.
  • Your business financials need to support it – If you have too much or too little “collection potential” an Offer in Compromise will not be the best resolution for you. There is an optimum amount to offer, and this is where the nuances of a expert payroll tax negotiator will come into play.

What you need to know about ‘TFRP’

There is something called the “TFRP”, which is the Trust Fund Recovery Penalty. It is a penalty imposed by the IRS on businesses that fail to pay employment taxes as required by law. The taxes due are Social Security, Medicare, and federal income taxes (all withheld by the employer). The penalty was created so that people couldn’t “hide” behind corporate entities to avoid payment; it makes corporate officers or LLC members liable for the taxes. And yes, that does mean personally liable.

I am so thankful that I took the time to learn about IRS Fresh Start Program — it helped me to form a plan to solve my business tax problems.